“I believe that business has the responsibility to be in service to social, environmental and economic justice - one way to do that is to design equity into the financial systems up front so that they create the space for thrival, not just survival.”

The first thing to think about when thinking about your business books is: what do you want them to do? What is your desired outcome for your books? This type of thinking applies whether you’re starting your books from scratch or whether you’ve been in business for years.

It’s what “thinking strategically” looks like and there are two main tracks.

1. The “rear view mirror” approach (aka financial accounting).

If your goal for your books is to have numbers to turn over to your tax preparer at the end of the year, then Mint.com or Freshbooks.com should work just fine for you. They are “off the shelf,” canned systems for you to track your income and expenses with the IRS tax forms in mind.

This is what I call “looking in the rear-view mirror.” Your books will show you where you have been. This is the bare, doggone minimum you need to stay in business and comply with tax laws. This is basic bookkeeping and it is the foundation, the bedrock of your business operations.

If your goal is to see how you are doing as a business, if you’re making money, which customers and services are making money and which ones aren’t, then QuickBooks for Mac or Windows is the program for you. Designing and customizing the format of the reports is the key to giving you the information you need to make plans. Monthly reports give you the feedback you need to take the pulse of your business and make strategic decisions.

Successful businesses have a plan and they work that plan. Doing your books on a monthly basis is the frequency needed here to get the information you need in a timely manner. The key here is to turn the unrelated bits of data into a clear pattern of information that you then can use to make decisions.

The truth is that your business needs both these points of view to be viable and sustainable. Trouble is that lots of businesses just do the “rear view mirror” one for tax compliance purposes. Running a business requires so much more and only the “windshield” approach combined with the “rear view mirror” is going to get you there.

Where on the road are you in your business? Are you tooling down the highway or stuck in the garage? Let me know. Post a comment. Ask a question. Would love to hear from you.

I had a lovely conversation with Ana Melikian of AnaMelikian.com last week. Ana is a Book Yourself Solid® Certified Coach and she specializes in helping other coaches and consultants get more clients with ease and joy.

What I love about Ana is that she not only teaches entrepreneurs the marketing strategies they need to build their online business, but she also shows them how to implement those strategies using the latest technology.

I can’t tell you how valuable this nexus is. It’s not enough to only understand what to do; you also need to know how to do it.

The big date to keep in mind for complying with an important IRS requirement is coming up: February 28, 2013. That’s the deadline for filing your 1099 forms with the IRS. Penalties apply if you file after that date. So now you know…that ship has not yet sailed!

Right about now you might be wondering, “What the heck are 1099s and do they apply to me?”

Good questions.

1099s are forms that you, the business owner, fill out and send to the vendor and the IRS reporting each vendor’s tax info and the total amount you paid them in 2012.

It used to be that businesses were required to report to the IRS all payments of $600 and over to vendors who were not incorporated or taxed like corporations (more below on how to determine this little factoid about their tax status.)

That all changed effective with tax year 2011.

Now you, the business owner, are only required to file 1099s on vendors that meet ALL THREE of the following criteria:

Paid $600 or more in the calendar year

AND

Paid by cash or check

AND

Paid a vendor who is not a corporation or taxed like one.

Another way of looking at this is that you don’t have to report any payments you made to vendors via credit card, debit card, gift card, or PayPal, no matter how much you paid them or what tax status they hold. That’s because your credit card company, your bank, and PayPal will file their own 1099s with the government. So helpful, nay?

How do you know what your vendors’ tax status is? How do you know if they aren’t a corporation or taxed like one?

There are a couple of really quick ways to know:

If your vendor has “Inc.” as part of their name, then you know that they are a corporation and you are NOT required to fill out a 1099.

If you made payment to a vendor using their personal name, then they are sole proprietor and DEFINITELY need to get a 1099 from you.

If neither of these two applies then you have to ask them what their status is. You do this by sending them a request to fill out a W-9 form. When they send it back to you, you’ll know. Here’s where you get the most current form online from the IRS: form W-9. Don’t be put off by the date of December 2011 on the form; it is the most current…really.

So to recap: if you paid more than $600 via cash or check to any vendor NOT a corporation or taxed like a corporation, then you need to file a 1099.

Now the deadline of January 31, 2013 to send all your 1099s out to your vendors has come and gone; but not to worry. You still have time to complete your 1099s, send them to your vendors and meet the hard deadline of February 28, 2013 to send the report to the IRS. This is the important deadline that has consequences if you are late.

What if a vendor doesn’t send a completed form back to you?

The best way to insure that this doesn’t happen is to make receipt of a completed form a REQUIREMENT before they get paid. It’s amazing how much of an incentive that is. If they blow you off after you’ve requested the info, then send them a letter via certified mail to record that you did your due diligence and that you sent it.

Whether you use a PC or a Mac, the desktop version of QuickBooks beats out the online version hands down. Where did that term, “hands down” come from, anyway? “The term dates back to the mid-19th century and the genteel world of British horse racing. Back then, a jockey who found himself way ahead as he approached the finish line would relax his grip on the reins and drop his hands.” http://ask.yahoo.com/20051215.html Thought you’d like to know.

But I digress. Why the desktop? Let me count the ways…

1. The desktop version is cheaper.

The cost of the desktop version, QuickBooks for Mac 2013 or QuickBooks Pro 2013, is $249.95 and you can use it for a good two years ( if not more) before having to upgrade to a newer version. Compare that to the monthly subscription for QuickBooks Online Plus of $39.95 or $479.40 a year. At the time of this writing Intuit, the maker of QuickBooks, is running a special: $199.95. And it’s a tad cheaper than that on Amazon. You do the math!

2. The desktop version is faster.

OMG! Close to twice as fast, depending on the day. Instead of spending an hour on the online version, you spend 1/2 hour on the desktop. So what takes you 2 hours a month on a desktop could take up to 4 hours online. Again, do the math!

3. The desktop version is much more robust.

It has so many more features and report options that make it so much easier to use. I could go on and on about this, but I won’t.

“But,” I can hear you saying. “QuickBooks Online lets your virtual bookkeeper access your books. Doesn’t that make it all worthwhile?”

No. I have one word for you. Dropbox. Putting your desktop version company file in file sharing technology like Dropbox gives you the exact same functionality at significant cost savings. It’s really a no brainer.

I had a great session with a client this week. Her sales so far this year are 8.5 times what they were for the whole of 2011 and she is well on her way to building her mini empire!

She is in my SetUP to StartUP program. This is the one for entrepreneurs in the first year or two of their business who are ready to switch from Excel spreadsheets to QuickBooks. Clients gain confidence around their numbers and develop healthy financial habits. At the end of our three months together, they have a solid foundation on which to grow their mini empire.

Besides helping her set up her tracking system using QuickBooks Online, I created three easy-to-use worksheets for her to:

calculate her home office expense deduction,

keep a mileage log, and

estimate what, if any, her 2012 estimated federal tax payments should be as a sole proprietor.

This last one is especially important for those of you who have made some money this year and are wondering whether or not they need to be making estimated payments to the Internal Revenue Service of the United States.

So, as a refresher, the IRS requires sole proprietors, limited liability company members, partners, and s-corporation shareholders to pay estimated taxes throughout the year if they think their tax liability is going to be more than $1,000 AND they meet a convoluted rule that the IRS has helpfully graphed out on page 26 of its Publication 505: Estimated Taxes.

Please let me know if you have any questions or comments and I’ll be happy, as always, to answer them.

Say you invoice your clients via PayPal. For online, pay-as-you-go plans (no monthly, setup, or cancellation fees) PayPal will deduct 2.9% plus $0.30 per transaction whether your client pays by credit card or directly from their bank account. When you invoice directly from QuickBooks, their service, Intuit Payment Network, charges 3.25% for credit card payments and $0.50 for bank payments. For pay-as-you-go plans using your smart phone to swipe credit cards, Square One comes in at 2.75% and Intuit GoPayment is the lowest at 2.7%

So the challenge is the cost of accepting credit card payments from customers.

The plan: research the different vendors and compare fees

Work the plan: choose the lowest rate that reflects how you invoice your clients.

Done!

The inside challenge: resenting those merchant fees

First off, let me say that I understand. This is a typical reaction when you’re in start up. I felt it the first time I saw the 3.25% deducted from my first client’s payment. Been there, done that!

You know that you’re resenting the fees when you try to find ways of avoiding them. This is NOT a good use of your time. If you think that you are losing a lot to fees, that the fees hurt, you’re caught in a limiting belief. You’re not losing and they don’t hurt. In fact, offering your clients the option of using a credit card actually increases your profit.

Let me put it into perspective for you:

I’ve paid a high of 3.25% and a low of $0.50 per transaction and it’s evened out to an average rate of 2.09% because some of my clients pay by credit card and some pay by bank transfers. About ¾’s of my clients use credit cards, so I’m thinking that offering and accepting credit cards is a really good idea.

Some of your clients might be in boot strap/start up mode and have a credit card that isn’t charging them interest for a year. Your credit card policy allows them to invest in your services even if their current cashflow is a bit tight. Or they want to use their cards to rack up airline miles or rewards points. And then there’s the convenience of clicking to pay instead of writing a check, addressing an envelope, putting a stamp on it, and getting it in the mail.

And here’s the last bit of why taking credit cards is a good idea. What with the new IRS regulations, business owners are no longer required to prepare and submit 1099’s for eligible vendors that they pay via credit card or PayPal. The IRS is getting all that info direct from those third-party vendors.

Congratulations on reading this far down in the minutiae of cost analysis! If you have any follow up questions, please post them in the comments sections and I’ll be more than happy to answer them.

A properly designed and managed accounting structure pays for itself. Hard to believe? Always thought that the accounting department was a “cost center?” Let me show you how looking at your accounting from a CFO’s perspective will not only pay for itself, but be a revenue stream as well, thereby creating equity for your business.

Pay all of your vendors using the “2%-net10” option. Vendors who give you 30 days to pay your invoice will usually also offer you a 2% discount if they receive the payment early, within 10 days of the date of the invoice. So, for every $10,000 in “payables” (accounting jargon for “what you owe your vendors”) you save $200. If they don’t offer this option, talk to them about it.

Offer those same terms to your customers/clients. If you are bootstrapping your business on credit cards, or have taken an equity line of credit out on your house or are otherwise financing your business, then consider offering those same “2%-net 10” terms to your customers. You may book a ton in sales, but cash is king. Get the cash. Every $10,000 in uncollected “receivables” (accounting jargon for “what your customers/clients owe you”) can cost you around $200 a month in interest and bank fees.

Single-source your vendors. Instead of switching from one vendor to another for the same need, stay with one vendor. For example, when I worked in corporate as Director of Finance for a trade book publishing company, printers were always calling me up trying to get my business with “introductory” pricing. I could have printed our books using five different printers and saved some dollars. However, I didn’t do that because staying with one vendor, single-sourcing, builds up an institutional memory that yields so much more value and saves money in the long term. You build a relationship with your vendor. And it is in their best interest to treat you like a partner, not a sale.

Don’t go with the cheapest price. Paying bottom dollar does not guarantee that you will be saving money. True, you’ll be paying fewer dollars, but ask yourself, “Why is the price so cheap?” It could be that it is a loss leader and that the low price won’t be around for long. Maybe the vendor is experiencing hard times just now, but when s/he gets back on their feet, prices will go up. Could be that the vendor will get so many customers because of the cheap price that they won’t be able to deliver as promised.

Take advantage of vendors’ discounts for prepaying. Some vendors give you two ways to pay for a service. My old web hosting company, for example, offered a prepayment of $120 for the year or $19.99 a month. Now any cash strapped business might be tempted to go the $19.99 a month, but at the end of the year the cost for that service would be $240, twice what the “pay in full” price was. Even if you had to borrow the $120 and pay 25% interest, you would still come out $90 ahead. Start thinking in terms of what a service or product costs you over the period of one year, instead of what the monthly charge is. Think bigger!

One thing that all of these features have in common, besides the money savings, is the time savings. And you’ve heard that “time is money.” Why is that, exactly? I think it’s because we can always make more and more money, but we can’t make more and more time. We all have the same 24 hours in a day, the same 7 days in a week. So if you can spend ½ a day in business development, reaching out to potential customers with the possible potential of $25,000 in new sales instead of spending that same amount of time on the phone chasing down past due receivables, wouldn’t you want to do that? Not only would you increase your bottom line, you would have a lot more fun.

Continuing on in the spirit of imperfect action (which just means “do it even though it ain’t perfect”), I invite you to listen to the second in the series “Interviews With the Experts.”

What do I mean by taking imperfect action? When you listen, you’ll hear really loud rustling in two or three places in the beginning. That’s me futzing around with my paper notes too close to the microphone. Lesson learned! As Louise Hay says, “It’s alright to make mistakes while learning.” Another fine definition of imperfect action.

In this otherwise fabulous 40-minute segment, I have a lively discussion with the superb business and life coach Elaine Bailey of www.ElaineBaileyInternational.com discussing how and why entrepreneurs can benefit from working with a coach.

Elaine Bailey turned her life around when she realised that she was letting life just happen to her. She was Settling and Surviving. So she decided to take the leading role and become clear on what was important. She learned how to say ‘no’ to the things that no longer served her and faced the challenges of busy-ness tackling distraction, overwhelm and burnout full on! She became the locksmith in her own life and learned how to unlock her own potential to create an authentic and purposeful life. She is now dedicated to helping busy and successful women and men do the same!

Elaine is an international business and life coach as well as a learning and development consultant for large corporations. She is also an international motivational speaker, whose topics include“Business or Busy-ness? Four Ways to Get Your Life Back on Purpose” as well as president and founder of Elaine Bailey International Ltd, a company devoted to coaching busy and successful women and men into their best lives andLiving On Purpose. Her clients range from nurses, entrepreneurs, senior executives to creatives, who are ready to take the leading role in their life. She uses many practices from being a certified coach in NLP, Transactional Analysis, Psychology and her experience as a Chartered MCIPD, to help people stop Settlingand Surviving and start Creating and Thriving in their lives.

Elaine lives in Yorkshire, England.

Hope you like the discussion. I’d love to get your feedback in the comment section below. Happy listening!

I’m starting something new here at Equity By Design and the working title is “Interviews With the Experts.” To kick off this project, I spoke with my own dynamite virtual assistant, Emily Kristofferson, about the care and feeding of a VA. Emily got my website up and running when I was starting up and I couldn’t have done it without her. Listen to this and get some great tips that you can put into practice right away.

Emily Kristofferson, Virtual Assistant + COO

As a Virtual Assistant and COO, Emily helps entrepreneurs implement online marketing strategy to grow their revenue and take their message and services to a larger audience.

With over ten years of experience in business management, Emily brings her thorough knowledge of marketing, planning, project management and coaching into your business. From marketing to web design to product launches, she teaches the necessary steps, sequences and systems needed for business success online.

When I first began healing from 15 years of debt, I despised the word “patience.”

The fact that it comes from the Latin pati, meaning “to suffer,” didn’t help. But here’s the thing: that same root gives us “passion,” which in addition to its erotic conotations, means “boundless enthusiasm.”

When I learned that, I looked at “patience” in a different way. It wasn’t about “suffering in silence” or “resignation.” It was about deciding to face what needs to be faced with excitement and desire for change.

Now this wasn’t a “New Year’s Resolution” kind of thing, where I let myself off the hook around February 5th because it was just too damned hard. This was a “I don’t know how I’m going to do it and I have no clue as to how long it’s gonna take, but I’m going to get out of debt.”

And I can’t really explain what made that difference. Call it “grace” or “hitting bottom” or just being plain sick and tired of living on the edge. I think you know what I’m talking about: there’s a different feeling in your body when you commit to a decision. It’s complete and irrevocable. Deepak Chopra, in his “Creating Affluence: The A-to-Z Steps To A Richer Life,” talks about the power of decision as the cutting off all other possibilities so that you’re left with a single focus not countermanded by anything. At first I thought he was a bit radical. But now I see that it really is a “no turning back” kind of thing.

And while he also talks about how healing can happen “with the flick of an intention,” sometimes there’s a lag time between the inward decision and the outward manifestation. And here’s where patience comes in.

It took years between the decision to be debt free and the actuality of it. To get out from under tens of thousands of dollars of credit card debt I got help from the San Francisco chapter of Consumer Credit Counselors. They advocated for me and got the banks to stop their collection calls, suspend interest charges, and to agree to a workable payment plan. My job was to work the plan. Which I did. And it took over two years of slow, steady monthly payments.

Looking back on it now, all these 30-something years later, I realized that the healing did happen in the “flick of an intention.” As soon as I made the decision, I was operating from where I wanted to be, not from where I was. And yes, it took a few years to clean up the consequences of all those past decisions. But it all started with “boundless enthusiasm.”